A laundry list of sweeping regulatory reform proposals over a four-year period – including delaying “risk-based capital” requirements, a new rule allowing alternative capital and blocking credit unions switching from federal insurance to be eligible for dividends or rebates – has been issued by the NCUA Board, with a 90-day comment period.
The proposals were issued in response to President Donald Trump’s Executive Order 13777, issued Feb. 24, which called on all federal agencies to implement “regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms.” The order also mandated task forces be created in each agency with a goal of eliminating red tape.
NCUA, as an independent agency, was not covered under the president’s order. However, in a release, NCUA stated that it chose to “voluntarily” comply “with the spirit of the order.” The agency also stated that its regulatory task force was created in March.
All changes outlined in the list of reforms would require NCUA Board approval, the agency also noted.
NCUA is proposing reform of regulations over a four-year period, broken into three tiers. In section III of the report to be published in the Federal Register, the agency outlines 40 regulations that its task force “believes are ripe for reform.”
Among those are recommendations in Tier 1 (first 24 months of the reform plan) are a delay to to risk-based capital, extending the implementation date from Jan. 1, 2019 to sometime in the future (no deadline provided). NCUA said doing would avoid the need to “develop call report and system changes while this rule is under review. The agency also said extending the implementation deadline would allow more “closely coincide” changes with the implementation of the new current expected credit loss (CECL) accounting standard, and “consider any changes in risk-based capital standards for community banks currently being considered by the federal banking agencies.” (Also, under Tier 2, the agency is considering changing the definition of “complex credit union,” to narrow the rule’s applicability and allowing credit unions with high net worth ratios to be exempt.)
Also in Tier 1 is a proposal to preclude a credit union that has converted to “another form of insurance” from receiving a subsequently declared NCUSIF dividend. Now, NCUA points out, if credit union terminates insurance before a premium is declared it does not pay the premium — but if it terminates insurance before a dividend is declared (within the same calendar year) it receives the dividend. “This is unfair to credit unions that remain insured,” NCUA writes.
Under Tier 2 (third year of the plan), the plan recommends that the NCUA Board “consider whether to propose a rule on alternative forms of capital federally insured credit unions could use in meeting capital standards.” The plan notes that the board should decide whether to make changes to secondary capital regulations for low-income designated credit unions, then resolve if it should authorize credit unions to issue supplemental capital instruments that would only count towards the risk-based net worth requirement.